Two-wheeler companies seek lower GST as challenges mount

Over the last few days, some of the top guns of India’s two-wheeler industry have been urging the Centre to reduce the GST (Goods and Services Tax) levy on their products from the current 28 per cent.

In their view, this is just way too much for a mode of transport that is targeted at the masses to help them with their daily mobility needs. Hence, the 28 per cent levy is on the higher side especially when the industry has been facing a series of challenges in recent times.

The GST was introduced in July 2017 to bring about a system of uniform taxation across the country and do away with the complexities existing in different States. Nobody questioned its intent except that its five-tiered tax structure, and the constant back and forth that followed thereafter, did little to help its cause.

In addition, auditors and income tax officials were completely flummoxed trying to cope with the change since the levels of documentation had increased manifold. There have been constant changes since then with a reduction in GST on a host of products to make them more affordable to the end-user.

GST rework needed?

It is in this context that two-wheeler manufacturers believe the time has come for the Centre to address their concerns and bring down GST on bikes and scooters. Right now, it is at par with cars and other top-end products, which they believe is not quite right considering that a moped, scooter or motorcycle is a basic need across every nook and corner of India.

This requirement has become even more pronounced given the rapid levels of urbanisation, resulting in tremendous inflow of people from smaller towns into big metros for better job prospects. Consequently, the pressure on public transport increases substantially and the only way out is to go in for a bike as evident in their rapid proliferation across Chennai, Bengaluru, Pune and Hyderabad.

This puts in perspective why India is miles ahead of the rest as the largest producer of two-wheelers across the world with annual numbers now at over 20 million units and still growing. It is this market potential that is the biggest bait to Japanese multinationals like Honda, Yamaha, Suzuki and Kawasaki. Likewise, premium brands like Triumph, Harley and BMW are now eyeing smaller mid-capacity motorcycles to grow their India (and Asia) presence.

Yet, things have not been easy in recent times for two-wheeler companies. They have had to contend with headwinds in the form of high material and fuel prices, not the easiest of challenges to cope with in a price-sensitive market like India.

Insurance whammy

Beyond this was the insurance double whammy last September, which saw hikes in the compulsory personal accident cover for two-wheelers from ₹1 lakh to ₹15 lakh that came close on the heels of higher payouts for third-party premiums.

This was quite a lethal blow especially when there was no indication that this was going to happen and caught industry stakeholders off guard. Obviously, customers were not too happy since they had to pay more for their bikes and even while a part of the insurance levy was pruned subsequently, it really was of little help.

In all fairness, the market has factored in the higher insurance component but manufacturers now have to deal with added challenges in the form of implementing ABS/CBS safety norms that will be mandatory for all two-wheelers from April 2019.

This obviouslys mean incurring additional costs, which will need to be recovered from the customer. It is here that a lower GST will be more than welcome for companies since there is no telling how demand could be impacted otherwise.

“Nobody can really predict what kind of disruption can occur once these safety norms are in place and two-wheelers become more expensive,” admits an industry official. From his point of view, this is a product category where price plays an all-important role as evident in the rapid growth of entry-level motorcycles in recent months.

The next big frontier is the Bharat Stage VI emissions era, which comes into effect from April 2020. This will see a further hike in prices once expensive fuel injection equipment is fitted in all two-wheelers. Manufacturers are only too aware that the price increase will be quite substantial but have no clue how this will impact demand.

Going by present market behavioural trends, it is quite evident that entry-level options like Hero’s HF series and Bajaj’s CT 100 are going great guns largely because they are the most affordable. At the performance end, where models like the Bajaj Pusar and TVS Apache dominate the arena, customers will not let price determine their buying decision simply because their mobility priorities are different from the entry segment user.

Mid-range segment vulnerable

It is in the mid-commuter motorcycle category, where Hero is the leader with its Splendor, where pressure could mount because products here are more expensive than alternatives at the entry-level. Of late, scooters have also not been growing at the earlier frenetic pace because there is a distinct lull in urban demand.

This explains why manufacturers like Honda, which is the scooter monarch with its Activa, are going all out to increase their retail presence in Tier 2/3 centres. They see a lot of opportunities to increase the levels of scooterisation especially with more women seeking comfortable mobility options.

Given these challenges, it is only natural for two-wheeler companies to seek some kind of reprieve like a reduction in the GST levy. After all, the average price of a scooter or motorcycle is nearly a tenth of a compact car and their levies, therefore, cannot be at par as is the case now.

Income realities

Further, there are income realities to be reckoned with in a diverse landscape like India where there are people who can just about afford to buy a two-wheeler. It will be very difficult for them to absorb price hike shocks, especially when accessing finance is another challenge.

And as much as global experts may see India quickly climbing the rungs to emerge the third largest producer of cars in the coming years, it is still essentially a two-wheeler country. In the coming years, numbers of scooters and motorcycles will comfortably exceed 25 million units, seven times the number of cars sold every year.

After all, this is a country where supply in the form of public transport just cannot keep pace with demand. There are just way too many people who want quick mobility solutions and what better than a scooter, motorcycle or moped?

It is very likely that the GST relief will come through for two-wheeler manufacturers eventually but it also throws up questions on the need for greater bonding within the industry when it comes to addressing a common cause. After all, this is an issue that affects all of them and teaming up for that one solid representation to policy-makers may just make all the difference by the end of the day.

The Indian automotive industry has a host of authorities where it needs to address its concerns, a list that includes the ministries of heavy industries, highways, petroleum and power. Niti Aayog has also stepped into the picture to define the electric mobility roadmap. One would perhaps be justified in assuming that there are way too many cooks stirring the broth!

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